Random thoughts of an economist

Need some incense, sir?

Posted in Economics by kafuwong on January 10, 2017

Stepping out of Wong Tai Sin MTR station towards the Wong Tai Sin Temple, you will see a line of four persons trying to sell incense to tourists.  If you are like most tourists, you will walk pass them and go to the point of interest – the Temple.

Unlike most tourists, I was not in a hurry.  In my recent visit, I paused to observe how they did business.  Initially, I wanted to know how often they were successful selling incense and the characteristics of the sellers who were more able to persuade.  Yes, there was a person with only one hand.  I would assume that more people would buy from him.  Nonetheless, I did not stay long enough to see any successful sales.

Initially, I thought the four persons would compete against each other for business.  To my surprise, they did not circle the potential customers at the same time to compete for business.  Instead, they took turns.  They organized themselves in a line.  The one in the front would approach the passer-by.  After the attempt, success or not, he/she would move to the end of the line.

The business appeared organized.  The obvious advantage of such arrangement is to avoid vicious competition and potential conflicts among the salespersons. That all salespersons circling the potential customers at the same time to compete for business can be understood as an outcome of non-cooperation, an inferior outcome.  That all salespersons lining up to approach potential customers one by one can be understood as an outcome of cooperation, a superior outcome.

What caused the cooperation?  Economists have studied repeated games and found that cooperation (which yield better outcome) is more likely in “infinitely” repeated games.

Now, think about the several local dominant players in specific sectors.  Have you ever wonder why they appear cooperative?

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